Hourly rates

When a project’s requirements are very vague (or for pre-design, partial, or conceptual services) — and you feel like you can’t gauge the time you will have to spend — hourly rates might be a good option.

Pros

Every hour will be covered, without risk for estimation errors.

Cons

When you set an hourly rate, clients will be more inclined to see you as a cost. With every hour you work, their bill goes up. When you send an invoice, they’ll want detailed explanations, and may even think you’ve exaggerated your timesheet.

Remember that customers are unaware of architecture’s tasks and regulations, and don’t believe the time it takes to ensure everything happens according to schedule and law. This constant analysis of hours (when working with an hourly rate) is time-consuming and can lead to unnecessary stress between both parties.

It’s like when you’re in a per-minute taxi. You monitor the meter carefully, and try to follow where the driver’s going. Especially if you don’t know the area (like most clients don’t know architecture), you’ll be suspicious and think they’re trying to overcharge you.

It’s also not motivating for you, the architect. Since your time will be paid no matter what, there’s no reason to go the extra mile. You’ll actually be rewarded for inefficiency, since you’ll be able to charge more when it takes you longer to provide the same level of service.

Summary

Hourly rates might work if the project scope is very unclear, and if you’re working for the right type of customer at a high rate. You can also use it for portions of a project — like when you’re just starting out, or when a client demands new changes.

If you choose to go this route, you can reduce client concerns by determining financial milestones that indicate progress along the way. This can help avoid pricing surprises at the end of a project.

Though rates depend on location, here are some ballpark hourly rates for the architecture industry:

Principal: 150€ / $175

Project Architect or Associate Principal: 130€ / $115

Project Manager: 80€ / $95

Intern Architect II: 70€ / $85

Intern Architect I or Drafting I: 55€ / $65

Fixed price

When the requirements, the schedule for design and approvals, the construction schedule, and other variables can be determined with reasonable accuracy, you can propose a fixed price. (Which you can adjust if conditions or scope change.) That’s why this pricing method is usually used for smaller-scale projects like removing a wall or adding a bathroom.

Pros

The customer will know the price upfront. A lot of customers value this kind of predictability.

This allows them to carve out a budget for your services and eliminate discussions about time spent.

Cons

Fixed price projects have a risk of scope creep, with the customer expecting more and more for the same price. So, if working with this pricing method, make sure you define everything in detail to avoid discussions and disappointments.

From a motivational point of view, fixed price projects aren’t perfect either. The moment the customer approves your proposal, you’re thrilled because of the new project and additional revenue.

But as the project goes on, the work becomes a burden. That’s true especially towards the end of the project, when you reach or surpass the number of hours you budgeted — and unexpected difficulties arise, like the customer changing their mind. (That’s why it’s important to add some margin to your fixed price estimate.)

As with hourly pricing, there’s no value incentive either: All you do is estimate the hours involved and multiply by your rate to arrive at a fee.

Summary

A fixed price is great for smaller-scale projects when the scope is super clear. You know what the customer wants, and you both know what you’re getting.

For bigger projects or fuzzier scopes, however, things might get messy. In these cases, you could apply hourly rates for work in the beginning stages, and then switch to a fixed fee when the scope is clear.

Remember that by committing yourself to do the work for a lump sum, you’re taking a risk that the work will be greater than estimated.

So, before going this route, ensure you:

Scope out the project as clearly as possible, and start charging by the hour when the initial scope has been completed.

Include a safety margin (risk premium) into your fee.

Percentage of construction cost

Percentage-based fees are the oldest, most tried-and-true way that architects bill for their work.

When the total construction cost increases, your time increases, too: Bigger projects typically require more effort to oversee the site, align with the builders, and even select products and materials.

Industry standards for architectural fees range from 9-15% of the construction cost (any portion of construction where architectural coordination is required).

Some architects calculate the fee based solely on a percentage of the final construction cost. Then they retroactively adjust the fee to incorporate any changes in the scope of work, or any change orders issued during construction. Others charge a percentage fee on cost estimates as the project progresses, and do not retroactively adjust their fees.

Pros

Just like with a fixed price, this method avoids invoice discussions. It’s the already agreed on percentage that determines the price, not the number of actual hours worked (like with hourly rates).

A percentage-based fee makes it easier for the customer to understand the cost of the architect, and for the architect to realize the cost for the client. Both become aware of what they have at stake and can identify clearer goals.

Cons

The customer might not think this type of pricing is fair. They might argue the link is arbitrary and that it motivates the architect to drive up the costs. That’s why it’s vital the budget is fixed from the start — and that the architect stays within it.

Like the aforementioned methods, this type of pricing doesn’t motivate you to generate value. With this method, the customer creates their budget — and after applying the percentage, you have your fee — no matter how much value you generate in the end.

Summary

Percentage-based fees work best when the client knows their scope and budget beforehand.

Since both parties understand what’s at stake, that often creates better dialogue and fewer heated discussions. Plus, there’s no need to keep track of time spent, which is good for everyone involved.

Have you never done anything worth more than $300 in one hour?

While the previous methods can work in certain situations, they’re still all time-based methods. Which creates a subtle incentive to be inefficient.

And which means that, as architects, we’re disregarding the value we create when determining our price. Instead of debating the value of services delivered, we’re debating the value of an hour’s time. One of the consequences of this mindset is clients continue to perceive architectural services as a cost — rather than a value.

In other words, time-based billing places a value on the clock, and not the outcome.

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